RF's Financial News

Sunday, September 29, 2013

If the Fed isn't tapering its QE
program, why was gold attacked and sent lower just two days after the
announcement? One would think that continued money printing would be a
good reason for gold to rise, right? But
it didn't, and I think I know why.

When The Ben Bernanke announced the
first QE (to help stabilize the markets after the big melt down), the world
accepted that as a valid response by a Central bank to inject liquidity into
the system. In that case gold was
allowed to rise ever higher because of the perceived inflation and the
uncertainty of the times. In November of 2010, QE 2 was announced (which
was really an extension of the QE 1), and the Fed said that they would continue
to buy $600 Billion worth of Treasuries – allowing gold to continue to work its
way higher.

But in September of 2011, it was the
announcement of ‘Operation Twist’, when everything changed.From that day forward, gold started to take a
beating – as the world (and especially China) realized that the U.S. was NOT going
to rebound. Gold hit its all-time high in the same month that ‘Operation
Twist’ was announced. From a high of $1,900
an ounce, gold has continued to fall – especially after additional QE
announcements.

Allow me to set the stage.Remember 1998 and 1999, money was everywhere,
jobs were plentiful, the stock market was going ballistic, and the U.S. was in
the midst of a computer revolution of epic scale.The technology explosion was furious. Every few months there was a newer (hotter) computer
chip that everyone ‘had to have’.Along
with the computers, we were all purchasing headsets, cameras, mice, keyboards,
modems, speakers, monitors, and more.It
was frustrating trying to keep-up, but something massive was also happening in
the global financial arena that most people didn't consider. Most of the world’s technology manufacturing
had shifted to China by that point.And
while we were spending our U.S. dollars buying the latest and greatest, China
was taking in Billions of dollars manufacturing these components.The Chinese companies (and the Chinese
Government) were flush with cash.

What does a country do when it's
taking in so much money? In stable
times, countries go to the bond market(s) and purchase secure treasuries and
sovereign bonds. China did just
that.China became an enormous owner of
U.S. Treasury debt. The U.S. Treasury officially states that China is the
largest holder of our debt, and now owns $1.3 Trillion dollars worth of our
Treasuries.They amassed the bulk of
that debt during the late 90’s – the tech explosion, and since the tech melt-up,
that amount has just continued to grow.

Fast forward to today, with China having
a major problem. They own over a
trillion dollars worth of our debt, and yet they stand helpless as the U.S. Central
bank destroys the value of these dollars right before their eyes. China knows that we’re playing the age-old
game of "devalue your currency and repay your debt with cheaper
dollars". Imagine how it feels to
lose over $25B/yr. of purchasing power – simply by holding onto U.S. debt.(I.E. the Fed has announced that they want a
minimum inflation rate of 2% per year.)The only reason that the U.S. dollar is holding up as well as it has is
due to the ‘rigged’ deal we have in place to be the world's reserve currency.If we ever lose our reserve currency status,
the dollar will be worth a lot less, and China certainly doesn’t want that to
happen.

Therefore, the Chinese have been
furiously trying to buy up "real" things with their dollars while the
dollar still has value. They've purchased
oil fields, U.S. theatres, IBM’s personal computer division, Smithfield foods,
and a ton of California commercial real estate. The Chinese realize that the fat lady is
singing, and the U.S. is NOT going to recover and be the super power for much
longer. They also realize they have
enough U.S. debt that they could crush us like a bug if they started selling
those bonds on the open market. So what
would you do if you were China?

1.Tell
the U.S.: “If you don't want us dumping hundreds of billions of your treasuries
onto the market, then find us a way to purchase ‘gold’ inexpensively – so we
can become a part of the NEXT global reserve currency.”

2.Begin
to back your country’s currency with significant amounts of gold.

3.And,
tell the U.S. to reduce the price of gold, so that U.S. dollars can purchase
more of the physical metal.

The good news for The Ben Bernanke
is that I think he’s scored a “Two For.”You see, often when gold moves up in price, it’s actually not gold
increasing in value but rather the dollar going down in value while gold
remains the same.So, as The Ben Bernanke:

-Continues
to print money (to keep this economy moving),

-Continues
to ‘naked short’ gold – supporting the dollar and reducing the price of gold,

-AND therefore
allowing the Chinese to purchase more gold with their existing supply of U.S.
dollars.The Ben Bernanke constructed a
great “two for” one deal.

The global ‘powers that be’ realize that
the U.S. cannot possibly repay its debts. The European Union is technically insolvent,
and there's going to be a global reset. None
of the real countries want anything to do with U.S. dollars any more. So, there's going to be a reset where the U.S.
dollar is no longer the sole reserve currency of the world. When that
reset comes, the Chinese (with enough gold backing) want to be considered solid
enough to be a part of the new global reserve. So each time you see these insane attacks on
Gold, you can rest assured that they're lowering the price so that China can
buy up another batch of gold, and make the dollar look like it isn't Monopoly
money. That appears to be the "wink and nod" deal that we have
with the world's Central banks and the IMF (International Monetary Fund).

If you match up physical supply and
demand for gold, you will see that there’s more demand than available supply.Now, add to that – the Central Banks
colluding to paper ‘short’ the gold market every time the dollar loses
significant ground.And finally add in
the Chinese buying-up all available gold inventories.This gives the illusion of a stronger dollar,
while agreeing to sell China all the gold they want at a discounted price.

So what do we do? We buy when the Chinese buy – on
pullbacks.This will end in an
inflationary blow-up, and then gold will be re-priced along with a new global
reserve currency. Be patient.It took 11 years for gold to go from $295
in the year 2000, to $1,900 in 2011. Gold will have its new all-time
highs, and I’m thinking we begin to see all ‘heck’ break loose before the end
of 2015.

Some people think an announcement
about gold will come on October 8th, with the birth of the new $100
bill.If you look at the new $100 bill –
it’s loaded with gold inferences: a big gold ink well, a gold feather for the
ink well, a gold liberty bell, even the $100 turns from Green to Gold if you
move the bill.I can only imagine how high gold would move on
any sort of hint to a gold supported U.S. currency.I don’t think that this will happen anytime
soon; however, that day will come when the Chinese feel they've got enough
physical gold to satisfy the world.

The Market:

Peas ‘n Carrots – Peas ‘n
Carrots.The market is pouting over the
Government fiasco that is playing out, and honestly I thought they would have
ignored these shenanigans by now.Over the past 30 years, the market has dipped
for ‘roughly’ the ten days before a debt-ceiling crisis, and then recovered
over the ten days following. Because it’s so common, I thought that this
time the market wouldn't go through it’s pout, but I am wrong.

The market has sold off for 6 out of
7 sessions. The DOW is below its 50-day moving average, while the S&P
is still well above its 50-day average. There hasn’t been much ‘technical’ damage done,
and (in fact) the IWM (which is the Russell 2000 ETF), is actually just a few
points off its all time highs.

A couple myths that are out there
(thanks to BL for the numbers):

-Myth #1:“There’s a lot of cash on the
sidelines.”- False.There is currently 3.5 times more money
allocated to stocks than is invested in money market funds. This is a
30-year high. The last two highs occurred during the top of the last two bull
markets of 2000 and 2007.

-Myth
#2:“Investors are waiting for a
pull-back in order to buy.” – False.Currently there is significant margin debt at NYSE firms.In fact, the current margin debt is larger
than was present in 2007.This says
that investors are currently buying.

-Myth
#3:“P/E ratios are right in the
investing sweet-spot.” – False.P/E
multiples in the S&P are currently at 21.5. Excluding 2000 and 2007, this is one
of the most expensive markets in history. Multiples have virtually doubled over the
last four years, and are not sustainable.

So this is nothing more than a
garden variety pull back, as lower volumes and a few ‘nervous nellies’ ponder
how the Government showdown is going to play out. This could (however) morph into something much
larger if both sides decided to shut down the Government for weeks (instead of
a day or two).At that point things
could evolve into a true 10% correction, but I don't think either side wants
that.

While the beginning of October has
the ability to be a bit nasty, I think that the ‘animal spirits’ will run and will
move well into year-end, setting an all-time high. Therefore, we have to
be patient and work through the ongoing Democrat / Republican slugfest. But remember, since The Ben Bernanke did not
taper (and there's no way he will taper in October), the market will (eventually)
have a green light to go run wild.

Tips:

Congrats to those of you who adopted the strategy of
selling slightly out of the money covered call options last week.For example: on Apple (AAPL) you netted over
a 60% annual return last week, and I would suggest that you do it again this
week. For example:Apple is selling for $480+ (per share) right
now.If you own some, you could sell the
$485 weekly call option (expiring on Friday, Oct 4) – and collect the $6 per
share.If the option expires worthless –
that’s about a 65% annual return, and if you’re ‘called out’ the return is even
greater.“Rinse ‘n Repeat” with many of
the weekly options stocks – some with better returns than Apple.I will elaborate on this strategy as the
weeks go on.

My
currentshort-term holds are:

-FB – in at 25.61 (currently 51.24) - stop at 49.00,

-SIL – in at 24.51 (currently 13.45) – no stop

-GLD (ETF for Gold) – in at 158.28, (currently
128.97) – no stop ($1,338.40 per physical ounce), AND

Expressed
thoughts proffered within the BARRONS REPORT, a Private and free weekly
economic newsletter, are those of noted entrepreneur, professor and author, R.F.
Culbertson, contributing sources and those he interviews. You can learn more and get your free
subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please
write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any
reproductions, including when and where copy will be reproduced. You may use in
complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If
you'd like to view RF's actual stock trades - and see more of his thoughts -
please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.

If
you'd like to see RF in action - teaching people about investing - please feel
free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To
unsubscribe please refer to the bottom of the email.

Views
expressed are provided for information purposes only and should not be
construed in any way as an offer, an endorsement, or inducement to invest and
is not in any way a testimony of, or associated with Mr. Culbertson's other
firms or associations. Mr.
Culbertson and related parties are not registered and licensed brokers. This message may contain information
that is confidential or privileged and is intended only for the individual or
entity named above and does not constitute an offer for or advice about any
alternative investment product. Such advice can only be made when accompanied
by a prospectus or similar offering document. Past performance is not indicative of
future performance. Please make sure to review important disclosures at the end
of each article.

Note:
Joining BARRONS REPORT is not an offering for any investment. It represents
only the opinions of RF Culbertson and Associates.

PAST
RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS
THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING
ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER
VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE
INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT
TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES,
AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN
ONLY TO THE INVESTMENT MANAGER.

Alternative
investment performance can be volatile. An investor could lose all or a substantial
amount of his or her investment. Often, alternative investment fund and account
managers have total trading authority over their funds or accounts; the use of
a single advisor applying generally similar trading programs could mean lack of
diversification and, consequently, higher risk. There is often no secondary
market for an investor's interest in alternative investments, and none is
expected to develop.

All
material presented herein is believed to be reliable but we cannot attest to
its accuracy. Opinions expressed in these reports may change without prior
notice. Culbertson and/or the staff may or may not have investments in any
funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

Sunday, September 22, 2013

The quotation: "The lady doth
protest too much." comes from Shakespeare's Hamlet.In Shakespeare's time, "protest"
meant "vow" or "declare solemnly". Hamlet is a play within a play, and the Queen
criticizes the Player Queen's speech on the grounds that excessive avowal of
her plan NOT to remarry after the Player King's death sounds hollow and
insincere. Over the years, there are many examples of situations where a
politician, a special interest group, or the media has gone over the edge in
promoting their agenda, to the point where you just know it's pure baloney.

One example of this was when we were
told that after the financial meltdown of 2008, all the new regulations and
rules made the banks safer and had removed all of the manipulations and frauds
in the system. Since that time we’ve
had:

-The
LIBOR price fixing scandal,

-The JPM
illegal short positions in precious metals,

-The
"London Whales" incident,

-The raiding
of private accounts on Cyprus,

-$700 Trillion
in derivative positions,

-MF
Global and Sentinel stealing customer money, and many other incidents.

So when you hear that these regulations
have made our banks safer: “I fear, the lady doth protest too much.”

I can go down the same path for:

-Gold
and silver manipulation – where the media will tell you that this is nothing
but fantasy, all the while whistle blowers have presented incriminating
evidence to the CFTC and SEC.

-Obamacare
– where the media is telling you how wonderful it will be, all the while hundreds
of companies are placing workers on ‘part-time’ status, and Management and Unions
alike are asking President Obama to kill it.

-And our
most recent Fed Taper – where the chorus was so loud that 90% of the world was
convinced we were going to see a cut in our QE spending.And what happens ten minutes after the ‘no
taper’ announcement, the media starts to tell us about how it will probably
happen in October.

-Mortgage
financing / re-financing has dropped by 70% since May – that’s bad.

-Retail
sales increases fell well short of expectations – that’s bad.

-The
French and Italian production rates decreased by 1.8% and 4.3% respectively –
that’s bad.

-And the
unemployment rate in Greece (where this all started) is a record high 27.9% -
that’s bad.

-Student
Loan debt increased by $12.2B, and at over $1T with no end in sight – there’s
no way that this ends well.

Remember, the louder the voices, the
less likely it is to happen.If an issue
has been ignored or dismissed, I would advise you to look in that
direction.Do your own homework, and
then you’ll know the truth on how you should react; otherwise, “I fear, the
lady doth protest too much.”

The Market:

Last week we didn't get the taper,
and the market blasted higher on Wednesday. But by late Thursday the market had realized it’s
mistake.Everyone had been so convinced
that the taper was on and that ten year interest rates would climb over 3% -
they had made investments accordingly – and now had to unwind all of those
trades.

I knew that Friday would be a
disaster:

-Investors
would need to reverse trades made in-advance of the taper,

-It was
a triple-options expiration day,

-The S&P
was being quarterly rebalanced, and

-The DOW
was also being rebalanced as winners and losers were swapped in and out
respectively.

Sure enough it turned ugly late in
the day and before it was all over, the DOW had lost over 180 points. Every penny (and then some) from Wednesday's
big surge on the ‘No Taper’ news was lost.So, have we seen the top in the market for the year?

I don't think so. On Friday there were a lot of positions to
square off, and a lot of rebalancing had to take place. In addition, there was pure, old-fashioned
profit taking.We could be facing a 2 to
3% pullback, but I’m in the camp that we see a year-end rally that sends us
right back up to all-time highs. This entire year has been built on Fed
money, and The Ben Bernanke just told us that more is coming.

Don't get me wrong; I'm upset that
the market couldn't care less about fundamentals and only cares about
"free money injections". But
unfortunately that is the hand that we’re dealt.While the market puts and sells, know The Ben
Bernanke continues to pump in his $1.5 to $5.5 Billion a day, and it accumulates
in the banks looking for a place to spend it.There is a point when the banks won’t be able to contain themselves any
longer, and then they will buy up everything in sight.This is what they've done all year, and what they
will probably do into year-end.

I’m creating a shopping list of
stocks that will run well when the market gets past its profit taking pout
party. We also have the fight over the
debt ceiling looming, and it was during one of those exact fights that the U.S.
lost its AAA credit rating. This is
making the market quite nervous. I think
we see a week of ugly, sideways to down trading, until they put this behind
us.But at some point it will indeed be
behind us, and all they will think about is Holiday bonuses. Greed will win;
just wait for it.

In terms of the looming debt ceiling negotiations,
you may wish to consider selling slightly out of the money, weekly call options
– as a strategy.That is to say: if
Apple (AAPL) is selling for $467 right now (and if you own some) – you may want
to sell the $475 weekly call option (expiring on Friday, Sept 27) – and collect
the $4.55 per share.If the option
expires worthless – that’s about a 55% / year return – and if you’re called out
that’s a 150% return.With weekly call
options – in general:

-You’re getting paid
for the volatility and a small up-tick if it comes,

-It’s weekly so you
can re-evaluate next weekend, and

-You can take
advantage of the option’s theta decay as you get closer to the weekend
expiration date – and buy the option back (if you need to) at a much reduced
price.

Finally I’m still thinking about these 3 tips for the
weeks to come – the first two in particular are getting a lot of notice:

-NDLS – Noodles the
restaurant chain – buy under or close to $45 (currently $44.22).

Expressed
thoughts proffered within the BARRONS REPORT, a Private and free weekly
economic newsletter, are those of noted entrepreneur, professor and author, R.F.
Culbertson, contributing sources and those he interviews. You can learn more and get your free
subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please
write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any
reproductions, including when and where copy will be reproduced. You may use in
complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If
you'd like to view RF's actual stock trades - and see more of his thoughts -
please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.

If
you'd like to see RF in action - teaching people about investing - please feel
free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To
unsubscribe please refer to the bottom of the email.

Views
expressed are provided for information purposes only and should not be
construed in any way as an offer, an endorsement, or inducement to invest and
is not in any way a testimony of, or associated with Mr. Culbertson's other
firms or associations. Mr.
Culbertson and related parties are not registered and licensed brokers. This message may contain information
that is confidential or privileged and is intended only for the individual or
entity named above and does not constitute an offer for or advice about any
alternative investment product. Such advice can only be made when accompanied
by a prospectus or similar offering document. Past performance is not indicative of
future performance. Please make sure to review important disclosures at the end
of each article.

Note:
Joining BARRONS REPORT is not an offering for any investment. It represents only
the opinions of RF Culbertson and Associates.

PAST
RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS
THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING
ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER
VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE
INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT
TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES,
AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN
ONLY TO THE INVESTMENT MANAGER.

Alternative
investment performance can be volatile. An investor could lose all or a
substantial amount of his or her investment. Often, alternative investment fund
and account managers have total trading authority over their funds or accounts;
the use of a single advisor applying generally similar trading programs could
mean lack of diversification and, consequently, higher risk. There is often no
secondary market for an investor's interest in alternative investments, and
none is expected to develop.

All
material presented herein is believed to be reliable but we cannot attest to
its accuracy. Opinions expressed in these reports may change without prior
notice. Culbertson and/or the staff may or may not have investments in any
funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

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